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Record a payroll liability refund check

Learn how to enter a payroll liability refund check.

When payroll liabilities are overpaid, the liability balance becomes negative. To correct this, you can create a payroll liability refund check, which increases the liability balance.

Run a balance report

Before you proceed, create a Payroll Liabilities Balance report. Check for credits (amounts with negative values) that match the amount of refund and the tax item.

  • If there are credits, follow the steps to enter a payroll liability refund check.
  • If there are no credits, do a regular (manual) bank deposit. And post it to Payroll Expense. 
  • Assisted Payroll: If the refund is for a period before you started using Assisted Payroll, or the liability balance report does not show negatives, you must enter the refund check as a deposit to your bank account.

Enter a payroll liability check


  1. From the Employees menu, select Payroll Taxes and Liabilities. Then select Deposit Refund Liabilities.
  2. Select the name of the vendor who submitted the refund check.
  3. In the Refund Date field, enter the deposit date.
  4. In the For Period Beginning field, enter the first day of the pay period that the refund affects.
  5. Select how you want QuickBooks to handle the deposit:
    • Group with other Undeposited funds: Adds the amount in a holding account. And lets you enter a deposit with multiple items. This option requires you to use Make/Record Deposit to complete the process.
    • Deposit To: Records the amount to the account of your choice.
  6. In the Taxes and Liabilities section, select the payroll item/s affected by the refund.
  7. In the corresponding Amount column, enter the positive amount.
  8. (Optional) Enter a note in the memo field.
  9. Select Ok.
  10. If you are using Basic, Standard, or Enhanced Payroll for US. Or the payroll offering for Canada, the process is complete.
  11. If you have Assisted Payroll:
    • Select Employees > Send Payroll Data.
    • The Send/Receive Data window will open. In this window you will see Tax Adjustments. And possibly Funds to be Withdrawn for the amount of Deposit Refund of Taxes and Liabilities you just entered. This is an expected result from QuickBooks. And when sent, the funds will not be withdrawn.
    • Send a zero payroll. When payroll liabilities have been overpaid, the liability balance becomes negative. Depositing this refund has the effect of increasing the liability balance, bringing it back to zero.  

If the taxing agency withheld a portion of the refund for a separate balance due:

  1. Complete Steps 1 to 11. (In the Deposit total field, enter the full amount of tax refund.)
  2. To account for the portion that was withheld, enter a Liability Adjustment to reduce the liability.

If interest was paid to you on the check...

Do not include that amount in the Deposit Refund of Liabilities. Follow these steps instead:

  1. Complete Steps 1 to 5.
  2. Choose Group the deposit with Undeposited funds.
  3. In the Deposit total field, enter the amount of the refund minus the interest paid.
  4. Complete Steps 7 to 9.
  5. Create a Deposit for the interest and add the amount in Undeposited Funds. This will allow you to make one deposit with both payroll liabilities and interest included.

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